DaimlerChrysler paying the price for lack of innovation

AP , DETROIT

To explain DaimlerChrysler AG's slumping sales and declining US market share, many analysts and dealers point to the company's cars and trucks.

The problem, they say, is that Chrysler hasn't had enough vehicles that grab a buyer's attention. And that's the primary reason why, as Detroit's No. 3 automaker marks the fifth anniversary of its trans-Atlantic merger with Daimler-Benz, the Chrysler Group is the global automaker's most troubled division.

For the first three quarters of this year, Chrysler's US vehicles sales were off 14 percent from the same period in 1998, including a 35 percent drop in car sales. Chrysler's US market share has fallen from 16.1 percent two months before the merger closed to roughly 13 percent today. In August, the German-American automaker was outsold by Toyota Motor Corp for the first time in a single month in the US.

"It all comes down to product," said Alan Helfman, general manager of River Oaks Chrysler Jeep in Houston, one of America's largest Chrysler dealers. "They've given us some, but not enough. People want the newest and latest."

Analysts say Chrysler is paying the price for an aging vehicle lineup, poor product planning that dates back five to seven years and an influx of competitors -- new vehicles from Asian and European companies arriving in US showrooms.

Sparring with rivals General Motors Corp. and Ford Motor Co. in a fierce domestic pricing war also has eroded Chrysler's profits, although the automaker has offset some of the decline by heavy cost cutting.

Chrysler says it's lowered material costs by 15 percent and eliminated 30,000 jobs since launching a three-year turnaround plan in February 2001, a few months after DaimlerChrysler chose trusted lieutenant Dieter Zetsche to lead the US division as president and chief executive.

Now the pressure is on Zetsche to deliver a stream of new products to boost sales and earnings. Chrysler lost US$1.1 billion in the second quarter and is on the spot to reach a break-even profit target this year. The company earned US$639 million last year after losing US$4.7 billion in 2001.

Zetsche has said Chrysler will introduce 10 new or redesigned vehicles by the end of next year and 25 over the next 36 months.

Chrysler has little margin for error with the new cars and trucks. Analyst Art Spinella said the company already faces one of the industry's lowest closing ratios, which reflects the percentage of customers who visit a dealership either once or twice and then buy a vehicle.

But, said Mike Wall, an analyst with CSM Worldwide in Farmington Hills, "if you think about the average Chrysler buyer, they're not going into the dealership planning to spend in the upper US$30,000s to US$40,000."

To be successful, Wall said, Chrysler needs a good mix of cars, including a reasonably priced mid-size sedan.

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